Reforms initiated in the recent years have not really brought the breakthrough hoped for in France and Italy. In addition, house prices are still falling, the sharp rise of private-sector debt in past years is still not corrected and the burden on private households and businesses through debt service has therefore not yet eased at all.
Consequently, despite positive economic conditions - the weak euro, the low oil price and hugely expansionary monetary policy, growth pace in these two countries was still disappointing in the third quarter, at about ¼% q/q.
Dampening factors still remain and the tailwind from the weak euro is more likely to decrease overall in the course of 2016. France and Italy together account for about 37% or over a third of total GDP of EMU. With little set to change very quickly, recovery in the euro zone as a whole will probably remain sluggish. This will continue to provide the doves in the ECB governing council with arguments for further monetary easing.
"At 1%, the economy in Italy should expand at a slightly stronger rate in 2016 than in the closing year (expected 0.7%), mainly due to a greater statistical overhang and not higher growth momentum in the course of 2016. In the case of France, a predicted growth rate of 1.0% should be more or less in line with the level in 2015 (expected 1.1%)," notes Commerzbank in a research note.
